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Before you Trade Today: Know the Economic Calendar! Also See This Weeks Most Anticipated Earnings (Note: Red Indicates an Earnings Loss [Not Miss] Consensus), & Yesterdays Insider Buys.

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TODAYS COMMENTARY Get a Cup of Coffee & Enjoy Catching Up! If you aren’t reading this daily you are missing out on a wealth of information that could prevent unforced & unnecessary trading errors.

BUY LIST UPDATE: My first official BUY LIST options strategy was added to the buy list on Tuesday (as indicated in the paid subscriber section). I noticed the template I posted didn’t come out well. It was hard for folks to see. So I attempted to fix this issue today. Todays Option Tip of the day demonstrates how slow & low risk options income can lead to a profitable & lower than normal risk life in any market.

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TRADING TODAY: I’m smelling another red day. Not just because inflation numbers are reported on the 12th … that’s 3 trading days away (Including today), but because we have Federal Reserve Presidents Bullard speaking at 0900ET, Evens & Bostic speaking at 1400ET, & Williams speaking at 1600ET. What they say swings markets! We also have jobless claims at 0830ET but I’m not expecting too much craziness from that … yet. Then again, we may see a bump of short covering … but if this is the case I expect a nasty Friday.

YESTERDAY’s FOMC MINUTES: The minutes indicated that a Fed balance sheet reduction could be in order to the tune of $95b per month ($1.14T per year). How big is the balance sheet? $9 Trillion! Why does this matter? Well remember tapering … Whereas the Fed said they would buy less & less Treasuries month to month? Well tapering is over folks! They aren’t buying anymore. Now its time to reduce the balance sheet … they’re talking about selling. Remember the Fed money printer everyone joked about? We’ll offloading the balance sheet is more like a shredder. It is important to note that the FOMC Minutes is simply what the Fed Governors discussed … not necessarily what will happen. But it always moves markets on speculation alone.

The purpose of buying the treasuries (in the secondary market no less) was to keep treasury bond rates artificially low (incentivizing people to make other investments), to give the Federal Government a cheap source of credit (helping government debt), to flood the economy with cash (stimulus), to keep interest rates low (incentivizing borrowing & spending), among other reasons. Because the Fed holds a massive amount of treasuries & mortgage backed securities (yes these still exist folks … & they’re still on the balance sheet), they can significantly reduce the increase in money supply by simply selling these assets (The treasuries leave the Fed, money goes in & … simply disappears). So the Fed has two ways to reduce inflation. 1) Raising rates (This will dis-incentivize borrowing). 2) Offloading their balance sheet (This literally sucks money out of the economy). Of course the Fed could hold the treasuries to maturity … but the fact that they are willing to offload them clearly indicates more desperate measures.

Big takeaway? The Fed thinks inflation is so high that in addition to raising rates they’re also considering reducing the balance sheet … & while the market is expecting & pricing in interest rate hikes, offloading the balance sheet (sucking money out of the economy) may not necessarily be priced in. & the higher the rate of inflation, the more aggressive the Fed will likely get. All eyes on the 12th at 0830ET when the inflation numbers are reported. BE VERY VERY CAREFUL TRADING BETWEEN NOW & THEN! Remember that money not lost in this market is money gained & the winner is often the smallest loser in bear markets.

One Final Note: The FOMC minutes indicated that the reason we didn’t get a 50 basis rate hike was because of the uncertainty surrounding the war in Ukraine. Don’t expect this to continue!

Significant News Heading into 04.07.2022:

• Stock futures are little changed following a 2-day losing streak for the major averages

• European markets choppy with hawkish Fed, Russia sanctions in focus; Atlantia up 10%

• Japan, China stocks drop more than 1%; Samsung estimates 50% jump in first-quarter profit

• Treasury yields fall, 5-year and 30-year rates remain inverted following Fed minutes

• Oil major Shell to write off up to $5 billion in assets after exiting Russia

• Putin is preparing an eastern offensive in Ukraine. Here’s how this phase of the war could unfold

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